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Money demand accommodation: Impact on macro-dynamics and policy consequences

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  • Biscarri, Javier Gómez
  • Moreno, Antonio
  • Gracia, Fernando Pérez de

Abstract

In this paper we account for the U.S. Fed's response to money demand shocks by allowing for less-than-complete accommodation in the estimation of the Fed's money supply policy rule. We find a significantly lower degree of money accommodation in the 1979-1982 period, which hints at money targeting during that period rather than interest rate targeting. We identify the path of money demand and money supply shocks and comment on their effects on the dynamic behavior of money, interest rates, output and inflation: the monetary policy intermediate target seems not to be the key determinant of macro-dynamics. Our results allow us to offer comments on the implications for monetary policy of both the degree of money demand accommodation - thus, of the intermediate monetary policy target - and the evolution (reduction) of macroeconomic volatility between 1984 and 2007.

Suggested Citation

  • Biscarri, Javier Gómez & Moreno, Antonio & Gracia, Fernando Pérez de, 2010. "Money demand accommodation: Impact on macro-dynamics and policy consequences," Journal of Policy Modeling, Elsevier, vol. 32(1), pages 138-154, January.
  • Handle: RePEc:eee:jpolmo:v:32:y::i:1:p:138-154
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    Cited by:

    1. López-Espinosa, Germán & Moreno, Antonio & Pérez de Gracia, Fernando, 2011. "Banks' Net Interest Margin in the 2000s: A Macro-Accounting international perspective," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1214-1233, October.
    2. Kumar, Saten & Webber, Don J. & Fargher, Scott, 2013. "Money demand stability: A case study of Nigeria," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 978-991.
    3. El-Shagi, Makram & Giesen, Sebastian, 2013. "Money and inflation: Consequences of the recent monetary policy," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 520-537.
    4. Claudiu Tiberiu Albulescu & Dominique Pépin, 2018. "Money demand stability, monetary overhang and inflation forecast in the CEE countries," Working Papers hal-01720319, HAL.
    5. Muhanji, Stella & Malikane, Christopher & Ojah, Kalu, 2013. "Price and liquidity puzzles of a monetary shock: Evidence from indebted African economies," Economic Modelling, Elsevier, vol. 33(C), pages 620-630.

    More about this item

    Keywords

    Money demand shocks Money demand accommodation Monetary policy procedures Macroeconomic dynamics;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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